The Business

Scott Phillips talks to The Business

Updated
March 20, 2013 01:19:38

It seems the interest rate easing cycle may be at an end. At least that's what some observers are reading into Westpac's decision today to raise its fixed rate loan. The Motley Fool's Scott Phillips shares his insight.

TICKY FULLERTON, PRESENTER: Talking about the Reserve Bank it seems the interest rate easing cycle may be at an end, at least that's what some observers are reading into Westpac's decision today to raise its fixed rate loan.

I'm joined in the studio by the Motley Fool's Scott Phillips.

Scott, do you believe this is a sign that the cycle has finished for now?

SCOTT PHILLIPS, INVESTMENT ANALYST, THE MOTLEY FOOL: Yes, I think that's absolutely what we're led to believe by Westpac making that decision. They're really saying that there's no further cuts on the horizon, at least not in the short to medium term.

They've taken a decision that rates in the medium term are going to be higher than they are today or rather than the same or lower. I think we will see a lot of banks following Westpac's lead given they've moved first and slightly creep their rates up.

TICKY FULLERTON: Looking at another cycle that seems to be coming to an end, the mining cycle. I'm just looking at the jobs just today which seem to have gone, 100 gone at Rio, 100 at Xstrata, 400 at Orica's consumable business.

SCOTT PHILLIPS: We've talked a lot over the mining boom, the fact that it's sliding down. This is really another sign that the real boom in exploration, the boom in extension of mines and new production is really being curbed at the moment. We see the mining services companies have a tough 12 or 18 months, even the darlings of the sector having to report the F 14 outlook was murky.

There's some concrete decisions in the last couple of days with actual jobs being cut which does say that the mining companies aren't giving enough ongoing work to these companies to really keep the work forces in place and companies are really battening down for what could be a much less exciting future to come in the next year or two in terms of new development, new extensions to current mines and certainly new exploration.

We've seen BHP and Rio pull back on programs. We've seen the iron ore price really coming down a bit and fluctuating quite a lot. A lot of miners are pulling in their horns and tightening their belts and all sorts of good metaphors to really pull back on the non essential spending effectively and that's really hurting those miner companies, that really make their living feeding off the larger miners exploration..

TICKY FULLERTON: Spending on the other hand seems to be going up in infrastructure and in particular with the NBN. Suggestions today that these roll out numbers for NBN Co are coming down, they may in fact be halving their numbers. I think it was 283,000 homes passed by June 2013, the numbers might even be halved when they come out. I mean if NBN Co was a listed company how would investors be treating it?

SCOTT PHILLIPS: Not very well at the moment. With a longer term view you might take a different view. But it's very very hard to work out what's going on with this company. Less than half, 283,000 were the number they were supposed to be passing, numbers in today's press of 140,000, so less than half.

Senator Conroy saying he's not had a lot of detail about what's going on. Maybe yes minister going on there. The Minister hasn't yet been told the bad news potentially. Mike Quigley due to give him some information. Senator Conroy asking again apparently for more information's so we should stay tuned for some more information, probably bad news coming from the company now.

TICKY FULLERTON: Meanwhile the Shadow Communications Minister Malcolm Turnbull over the weekend was saying it could take 20 years or more to compete. Perhaps at a cost of $100 billion. Now, I suppose the multi-billion-dollar question is how much will it cost to stop it, to stop the roll out and rip the agreement up with Telstra, if that's what they want to do?

SCOTT PHILLIPS: Yes, that's right. Telstra believe they've got this absolute rock solid guarantee, the $11 billion payment from the government in at present value terms. They're banking on that money. They're progressing as if it's happening. Very hard for a government either Labor or Liberal to unwind this one. They're really kind of stuck between a rock and a hard place. It's going to cost a lot of money to complete, but even more to rip up. Telstra will want compensation for that. It's going to take a long time and be expensive but to rip it up will cost a whole lot more money again.

If the Coalition are to win government in September a lot to work out to keep Telstra on side, give them fair compensation but also have a good result for the public.

TICKY FULLERTON: It seems the government has more maths challenges. The Financial Review running a story today that there's a new $3 billion hole in the budget with the Government announcing a delay in the money from spectrum options?

SCOTT PHILLIPS: Yes, absolutely. Senator Conroy in the news, he's in the wars this week. We've had the media stuff going on, the NBN roll out, here we're hearing about the spectrum issue. A $3 billion-odd due to be paid, the deposits are due to be paid very soon.

All of a sudden the Government pushing back the deadline for those payments probably suggesting perhaps that maybe one or both companies, certainly probably Optus, the one maybe not coming to the party or not prepared to put up the amount of money that has been expected. The Government hopefully are saving face and pushing that deadline back hopefully to give companies a bit more time and possibly try and salvage a deal that Optus may walk away from.

TICKY FULLERTON: Vodafone pulled out earlier in January. Big questions over the management of the option I think.